Jan 10, 2014

VC vs an Angel Investor – how do you decide?

Taking money from VCs and angel investors isn’t an either-or proposition. Broadly speaking, angel investors can’t write large cheques whereas VCs prefer to. This means that you are more likely to receive angel interest early in your company’s development and VCs later in the game.

But back to this not being an either-or proposition: when I work with start-ups as an advisor, I strongly encourage them to evaluate their prospective investor from several viewpoints just as the investor evaluates start-ups from several viewpoints. Some things to keep in mind:

Do you and the prospective investor share a common vision? Can you see this investor sticking by you in good times and bad? Do you have a strong personal relationship?

Does this investor understand your business and industry?

Does the investor’s expected level of involvement in the business coincide with your own? Some entrepreneurs want an investor to be closely involved with them, others just want a silent backer. Just make sure both your expectations are aligned.

Does the investor’s exit timeline expectation align with your own?

If you will most likely require more capital down the road, does having this investor on board help with that? Possibly the investor could keep funding you to profitability or they will bring other investors into that game. Of course, the likelihood of future fund-raising is ultimately linked to how well the company performs, not just having a strong backer.

You can come up with other points specific to your situation. Note that I leave valuation out of the list above. As long as you’re receiving a fair valuation, the above points are actually more important to early-stage companies.

This is a cross-post of my latest column answering entrepreneurs' questions for Yourstory.com.

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